By Tom Westbrook and Ankur Banerjee
SINGAPORE (Reuters) – Investors dusted off their trade war playbook on Tuesday, confident their portfolios were better prepared for Donald Trump this time, after the newly elected U.S. president took to social media and promised new tariffs on Mexico, Canada and China.
Muscle memory, formed from years of responding to Trump’s tweets and threats in his first term, caused the dollar to rise and the peso, loon and yuan to plummet within moments of him posting on the Truth Social app about tariffs that he would introduce from the first day of his term of office. presidency.
But as traders drew breath, they saw little in Trump’s announcements that would change expectations about his policies or his bluster, including a negotiating style that investors are more comfortable with than they were eight years ago.
“The 25% tariff headlines are not yet policy, but a good indication that under the Trump presidency they will no longer tolerate the relocation of export production from China to America’s NAFTA partners by Chinese companies,” said George Boubouras, chief research officer at K2 Asset Management.
Trump, who takes office on January 20, said he would immediately impose 25% tariffs on imports from Canada and Mexico until they suppress drugs and migrants crossing the border. He promised an additional 10% tariff on Chinese goods, which he also linked to drugs, especially fentanyl.
The dollar rose more than 2% against the Mexican peso and about 1.4% against the Canadian dollar, before trading about 1% higher on both.
The dollar hit a four-month high against the Chinese yuan, although stock indexes in Hong Kong and China were largely stable, as investors saw Trump’s linking of tariffs to drug trafficking as reinforcing expectations that he would negotiate a deal. open.[.HK]
“China already has a template for dealing with tariffs related to Trump 1.0,” said Simon Yu, deputy general manager at Panyao Asset Management in Shanghai.
“As for other measures such as technology-related sanctions, China could accelerate the process of self-reliance and import substitution.”
China said it had briefed the US on progress in enforcing anti-narcotics laws and that “no one will win in a trade war or tariff war.”
TIMEWARP
Tariffs in Mexico appeared to catch markets the most, driving sales among automakers and other manufacturers across Asia that have factories in the United States’ southern neighbor.
Trump’s proposal appears to violate the terms of the US-Mexico-Canada trade deal.
Shares of Honda, which sends 80% of its production in Mexico to the U.S., fell more than 2% to a four-month low, while shares of other auto and parts makers fell.